We Like These Underlying Return On Capital Trends At Smartsens Technology (Shanghai) (SHSE:688213)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Smartsens Technology (Shanghai) (SHSE:688213) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Smartsens Technology (Shanghai) is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.11 = CN¥478m ÷ (CN¥7.9b - CN¥3.4b) (Based on the trailing twelve months to September 2024).

So, Smartsens Technology (Shanghai) has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 4.9% generated by the Semiconductor industry.

View our latest analysis for Smartsens Technology (Shanghai)

In the above chart we have measured Smartsens Technology (Shanghai)'s prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Smartsens Technology (Shanghai) .

The Trend Of ROCE

Smartsens Technology (Shanghai) is displaying some positive trends. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 165% more capital is being employed now too. So we're very much inspired by what we're seeing at Smartsens Technology (Shanghai) thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 43% of the business, which is more than it was four years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Smartsens Technology (Shanghai)'s ROCE

To sum it up, Smartsens Technology (Shanghai) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 50% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Smartsens Technology (Shanghai), you might be interested to know about the 2 warning signs that our analysis has discovered.

While Smartsens Technology (Shanghai) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.